Should I pay off the mortgage before selling an inherited house?
August 21, 2023 2:37 AM   Subscribe

I've inherited a house through probate that I plan to sell as soon as possible. There's a small enough amount left on the mortgage that the estate could easily pay it off today and still have about two to three times more than it will likely need to cover home repairs to market it and to pay the handful of estate creditors. I've never sold a house before. Are there advantages to not having a mortgage company/bank involved in the selling or closing process? Are there disadvantages to paying off the mortgage early (other than potential early pay-off fees)?

The house and I are both in the U.S. I have a lawyer and a realtor and I will check with both of them as well.
posted by anonymous to Work & Money (9 answers total) 2 users marked this as a favorite
 
If the mortgage interest rates is higher than any interest the estate earns in cash in a savings account, you'll pay a bit less by paying it off now. Correspondingly, if the mortgage rates is below the interest the estate earns in cash in a savings account, there's no reason to pay it off early.

Otherwise, I can't see any reason to pay off the mortgage early. It's easy to sell a house with a mortgage, and the buyer won't know the difference. All things being equal, I'd delay paying it off to keep more cash available in the estate on the off chance selling the place taks longer than you expect.
posted by saeculorum at 2:57 AM on August 21, 2023 [8 favorites]


Depending on who does the title transfer in your jurisdiction and how their fees are structured, it might save you a very small amount in legal/closing fees if you don't have to discharge a mortgage along with completing the sale. Might and small being very key words.
posted by jacquilynne at 6:16 AM on August 21, 2023 [2 favorites]


I'd say just pay it off through the sale. Reconveyances sometimes don't record for a long time, so you might be stuck trying to convince escrow that you already paid off the mortgage if the reconveyance isn't recorded by the time you close. Not a big deal, just sending paperwork to them, or having them have to confirm with the mortgage holder. Also, less hassle. Anytime you can avoid talking directly to a financial institution, you get to add three days to your lifespan!
posted by bluesky78987 at 7:16 AM on August 21, 2023 [6 favorites]


Same with the repairs, btw. If the repairs are not going to create more value than the cost of said repairs, let the new owner make them. That is all very dependent on the condition of the house, the neighborhood, the local real estate market, etc. But, I would talk to the RE broker who will list the house for their feedback on the repairs.
posted by JohnnyGunn at 7:49 AM on August 21, 2023 [7 favorites]


When land subject to a mortgage is sold, the closing forms simply list the lender and the title agency issues a check to pay it off. The title agency does the legwork in getting a final payoff number from the lender. They do it every day.
posted by yclipse at 7:55 AM on August 21, 2023 [1 favorite]


First, it is invisible to buyer if you have a mortgage or not so it will have no impact on the selling price or closing time or anything like that. Whoever handles the closing process (title agent in California) will handle paying off the mortgage - as others have said it is perfectly routine. Plus, there is the chance that the payoff won't have fully recorded with the county by the time you go to sell in which case there would definitely be headaches that you would rather avoid. I would wait.
posted by metahawk at 8:13 AM on August 21, 2023


I'm going through something similar myself right now except my mother's house doesn't have a mortgage on it. As part of the probate process, I must work with an accountant to finalize the estate. I'm assuming that you too are working with an account. She is the first person I would ask because she's going to know more about you and your situation. Plus, she deals with this sort of thing all of the time.
posted by jdroth at 9:09 AM on August 21, 2023


All the people saying that the buyer doesn't know the difference: that may be true by default, but you could choose to inform them. The reason is that (as I understand it, though I could be wrong) in some places, there is a potential tax advantage to the buyer depending on the remaining balance of your mortgage. If the home is located in a place that has a mortgage recording tax, it is sometimes the case that the new loan balance can be assessed on the difference between the old mortgage balance and the new mortgage balance, meaning that cooperating with the buyer on this could result in saving $(recording tax rate x your mortgage balance), which might be a nontrivial amount.

This page goes into more detail for NYC as a specific example (including describing a CEMA, which is how this transaction is realized).
posted by Expecto Cilantro at 12:10 PM on August 21, 2023


Discharging a mortgage is very much a routine part of transferring ownership of a property and you'll have to pay the bank a release fee and possible early payout fee regardless. I would leave things as they are and settle everything at once to avoid any problems with delays in releasing the mortgage.

Before you do any repairs or improvements to the house, consult with your real estate agent to decide what is worth doing (ie will add value) and what won't get you a return (increase in sale price vs cost of repairs/improvements).
posted by dg at 4:33 PM on August 21, 2023


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